Homework #3 NAME:

Economics 212X
1. Imagine that a state government is considering the construction o a new state oice
!ui"ding to conso"idate state o#erations. Its estimate o the tota" costs and the
tota" !eneits o !ui"ding a $% &%' (%' or 1)%stor* !ui"ding is shown in the ta!"e
!e"ow. +A"" igures are in mi""ions o do""ars.,
Total Marginal Total Marginal
Project cost cost benefit benefit
No !ui"ding - ) - )
$%stor* !ui"ding . -///// ( -/////
&%stor* !ui"ding 1& ///// 23 /////
(%stor* !ui"ding 2$ ///// 2( /////
1)%stor* !ui"ding 3$ ///// 31 /////
+a,0om#ute the margina" cost and the margina" !eneit o the $%' &%' (%' and 1)%
stor* !ui"dings.
+!, 1hou"d the state !ui"d a new oice !ui"ding2 I so' what si3e !ui"ding and
what wi"" !e the tota" !eneit' tota" cost' and net !eneit to societ*2
2. 4he o""owing ta!"e shows margina" costs and !eneits o the o#tima" 5uantit* o
#o""ution a!atement that wi"" occur at a "oca" actor*.
Quantity of
pollution abatement Marginal cost Marginal benefit
.)) tons -1))'))) -2)')))
&)) tons &)'))) 3)')))
6)) tons $)'))) $)')))
$)) tons 2)'))) &)')))
3)) tons 1)'))) ()')))
2)) tons 6'))) 1&)')))
+a,7hat is the o#tima" "eve" o #o""ution a!atement2 7h*2
+!, I the margina" !eneit o #o""ution a!atement were to increase !* -3)')))
at each "eve" !ecause o the actor*8s desire to im#rove its image and
environment' what wou"d the o#tima" "eve" !e2 7h*2
+c,7hat might cause the o#tima" "eve" o #o""ution a!atement to !e $)) tons2

3. Answer the ne9t our 5uestions on the !asis o the o""owing ta!"e which shows the
rankings o the #u!"ic goods !* three voters: A' :' and 0.
Public good Voter A Voter B Voter C
More #o"ice #rotection 1 2 3
More ire #rotection 3 1 2
More schoo"s 2 3 1
+a,7hat wi"" !e the choice !etween more #o"ice #rotection and more ire
#rotection2
+!, 7hat wi"" !e the choice !etween more schoo"s and more #o"ice
#rotection2
+c,7hat wi"" !e the choice !etween more ire #rotection and more schoo"s2
+d, 7hat do the rankings in the ta!"e indicate a!out choices made under
ma;orit* ru"e2

$. 7hat is the median%voter mode" and what are two im#"ications rom it2
6. Answer the ne9t three 5uestions on the !asis o the o""owing data:
Taxable income Total tax
-1)'))) - )
2)'))) 1')))
3)'))) 3')))
$)'))) &')))
6)'))) 1)')))
&)'))) 16')))
+a,7hat t*#e o ta9 is re#resented !* the ta9 schedu"e +#rogressive' #ro#ortiona"
or regressive,2
+!, 7hat wi"" *our average ta9 rate !e i *our ta9a!"e income is -6)')))2
+c,I *our ta9a!"e income increases rom -3)'))) to -$)')))' what wi"" *our
margina" ta9 rate !e2